The Internal Revenue Service has published final regulations in TD 9664, providing guidance on which costs incurred by estates or trusts, other than grantor trusts, are subject to a 2 percent floor for miscellaneous itemized deductions. The IRS proposed regulations in July 2007 stating that a cost would be fully deductible to the extent that it is unique to an estate or trust, however, if the cost was not unique so that an individual could have incurred it, then it would be subject to the 2 percent floor. Subsequently, the IRS received many written comments and held a hearing in November 2007 to address the regulations.

A Supreme Court ruling in 2008 also persuaded the final regulations. In the case of Michael Knight, trustee of William Rudkin Testamentary Trust, the Supreme Court ruled that fees paid to an investment advisor by an estate or non-grantor trust are generally subject to the 2 percent floor for miscellaneous itemized deductions under Section 67(a).

In September 2011, the IRS issued more proposed regulations and received another set of comments. The final regulations were issued last week and preserve the provisions of the 2011 proposed regulations with small alterations.